Your new home has an amazingly huge closet, but a startling lack of places to hang stuff. Sure, you could pile all your extra clothing, shoes and accessories in the corner, or move your antique
Earnest Money When You Buy A Tucson Home
As you approach a time when you’ll be purchasing a house, it will be useful to you to familiarize yourself with sections of the purchase contract and understand what they mean to you. Let’s start by elaborating on what the Earnest Money Deposit is and why it’s important.
When a buyer makes an offer to a seller using the Arizona Association of Realtors Residential Resale Real Estate Purchase Contract, an earnest money deposit (good faith deposit) confirms the buyer’s commitment to the terms of the contract and the process entailed in purchasing a home. Without earnest money, a seller is not likely to accept a contract because he sees the buyer as having no skin in the game and will be reluctant to take the property off the market. Any non-performance by the buyer leaves the seller without the possibility of claiming the earnest money as liquidated damages. More on that in the next couple of paragraphs.
In Arizona, we use title companies to open an escrow account. An escrow account refers to money held by a third-party on behalf of transacting parties, the buyer and seller. Title companies also have a important role in the transaction process but we’ll cover that in a later article. Once a contract is accepted by the seller, the buyer must deposit the earnest money with the title company within 24 hours. ( No cash, checks are payable to Title Company) As part of the real estate process, the buyer has several responsibilities, and taking in or wiring their earnest money deposit is one of them. An agent should not be involved in receiving funds from a buyer, even as a favor. There is unnecessary risk if the check gets lost or damaged while in someone else’s possession.
How much should the earnest money be? An accepted practice is that it should be about 1% of the purchase price. Keep in mind that the earnest money goes toward the down payment for a financed buyer or towards the purchase price if a cash buyer. In a fast- moving market, the buyer may want their offer to stand out above other buyers and convey to the seller that they are financially sound by initially offering a higher earnest money deposit. Under the same market conditions, a seller may request (through a counter offer) a higher earnest money deposit, particularly if there has been a lot of interest in the property in the form of multiple offers or if there are additional buyer contingencies that may extend the contract period.
Is your earnest money at risk? The AAR contract gives buyers several opportunities to cancel without penalty and to receive a full refund of their earnest money. As a buyer, you have two protections built into the contract, an inspection contingency and a financing contingency. A contingency is a provision for an unforeseen event or circumstance.
If during due diligence period, (10 days after acceptance of contract) the home inspection reveals something that the buyer cannot live with, the buyer, upon notice to the seller, may cancel the contract and be entitled to a refund of the earnest money. Of course, an option is to give the seller an opportunity to make repairs, but we’ll talk about that in a subsequent article. For now, know that a buyer may cancel the contract during the inspection period with notice to the seller of specific items disapproved.
If a buyer is unable to obtain loan approval from their lender, the buyer can deliver a notice of inability to obtain financing to the seller, as long as notice is given 3 days prior to Close of Escrow date specified in the contract or subsequent Addendums to the Contract. Providing notice in a timely manner entitles buyer to a return of their earnest money.
In summary, buyers need to be diligent about the home purchase contract deadlines and give written, timely notice of any intention to cancel within the contingency periods to be entitled to the return of their earnest money. A good real estate agent will keep you informed and updated as to the important timelines and nudge you when you you need reminders. It's always a team effort between to get you across the finish line!
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